Friday, March 29, 2019

New home sales for February were reported at 667,000 on a seasonally adjusted annual rate basis (SAAR). This was well above the consensus forecast, and sales for January were revised up. However sales for November and December were revised down.

With these revisions, sales increased 1% in 2018 compared to 2017. I expect sales to be around the same level in 2019 as in 2018, and my guess is we haven't seen the peak of this cycle yet.

On Inventory: Months of inventory is now just above the top of the normal range, however the number of units completed and under construction is still somewhat low. Inventory will be something to watch very closely.

This graph shows new home sales for 2018 and 2019 by month (Seasonally Adjusted Annual Rate).

Sales in February were up 0.6% year-over-year compared to February 2018.

Year-to-date (just through February), sales are up 2.8% compared to the same period in 2018. The comparison will be most difficult in Q1, so this is a solid start for 2019.

And here is another update to the "distressing gap" graph that I first started posting a number of years ago to show the emerging gap caused by distressed sales.

The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through February 2019. This graph starts in 1994, but the relationship had been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales. The gap has persisted even though distressed sales are down significantly, since new home builders have focused on more expensive homes.

I still expect this gap to slowly close. However, this assumes that the builders will offer some smaller, less expensive homes. If not, then the gap will persist.

Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.